How is Eligibility for the Employee Retention Credit Affected if an Employer Acquires the Stock or other Equity Interests of a Target Employer that had Received a Paycheck Protection Program (PPP) Loan and, Under the Aggregation Rules, the Employers are Treated as a Single Employer as a Result of the Transaction?

The Employee Retention Credit (ERC) has been a valuable source of relief for many employers who have been adversely affected by the COVID-19 pandemic. However, the eligibility requirements for the ERC can be complex, particularly for employers who acquire the stock or other equity interests of a target employer that had received a Paycheck Protection Program (PPP) loan and are treated as a single employer under the aggregation rules. In this blog post, we’ll explore how eligibility for the ERC is affected in this scenario.

Under the aggregation rules, when two or more entities are treated as a single employer for purposes of determining eligibility for the ERC, the ERC is allocated among the entities based on the wages paid by each entity. This means that if an acquiring employer acquires the stock or other equity interests of a target employer that had received a PPP loan and, under the aggregation rules, the employers are treated as a single employer, the acquiring employer may be ineligible for the ERC if the target employer claimed the credit for the same wages that the acquiring employer is claiming the credit for.

However, there are certain exceptions that may allow the acquiring employer to claim the ERC for wages paid to employees of the target employer. One exception is if the target employer did not claim the ERC for all eligible wages. In this case, the acquiring employer may be able to claim the credit for eligible wages that the target employer did not claim the credit for.

Another exception is if the target employer did not claim the maximum credit available for eligible wages. In this case, the acquiring employer may be able to claim the credit for the difference between the amount of credit claimed by the target employer and the maximum credit available for eligible wages.

It’s important to note that the rules governing the ERC and the aggregation rules can be complex and that employers should consult with a tax professional or advisor to determine their eligibility for the credit and to ensure that they are properly calculating and claiming the credit.

In conclusion, an acquiring employer may be ineligible for the Employee Retention Credit if the target employer claimed the credit for the same wages that the acquiring employer is claiming the credit for. However, there are exceptions that may allow the acquiring employer to claim the credit for eligible wages that the target employer did not claim the credit for or for the difference between the amount of credit claimed by the target employer and the maximum credit available for eligible wages. Employers should consult with a tax professional or advisor to navigate the claiming process and ensure that they are maximizing their relief potential while minimizing audit risk.